Severance Agreement

A Complete Guide To Severance Agreements

End employment on fair, lawful and respectful terms.

A Severance Agreement (also known as a Settlement Agreement) is a legal contract between an employer and an employee that sets out the terms under which employment will end - including pay, notice, benefits and any post-employment restrictions.

This guide explains everything you need to know about Severance Agreements - including when they’re used, what they must include, legal requirements under UK law and how to create one that protects both parties and avoids future disputes.

CONTENTS

• What is a Severance Agreement?
• Who Needs a Severance Agreement?
• Benefits of a Severance Agreement
• When to Use One
• What to Include
• Legal Requirements
• How to Create a Severance Agreement
• Cost of a Severance Agreement
• Template Example
• Severance Agreement FAQs
• Get Started with Robot Lawyer

What is a Severance Agreement?

A Severance Agreement is a formal contract that outlines the agreed terms of an employee’s departure from a business.

It usually includes:

• A severance payment or other compensation.
• Notice and termination dates.
• Waiver of claims against the employer.
• Confidentiality and non-disparagement clauses.
• Return of company property and confirmation of final duties.

In the UK, this type of document is commonly called a Settlement Agreement and must meet specific legal conditions to be binding.

It provides a clear and lawful framework for ending employment on agreed terms - protecting both sides from future misunderstandings or legal action.

Who Needs a Severance Agreement?

Severance Agreements are commonly used by:

• Employers wishing to end employment without risk of future claims.
• Employees negotiating exit terms, compensation, or references.
• Businesses restructuring or downsizing where redundancies are involved.
• Senior executives or managers leaving on negotiated terms.
• Parties resolving employment disputes without going to tribunal.

Essentially, they’re suitable for any agreed exit where payment or waiver of rights is involved.

Benefits of a Severance Agreement

It offers certainty, closure and legal protection for both parties.

Key benefits include:

• Avoids legal disputes by clearly resolving all claims.
• Provides financial security for the departing employee.
• Protects the company from future litigation or reputational risk.
• Maintains confidentiality of business or internal matters.
• Allows a clean, professional exit that preserves goodwill.

When to Use a Severance Agreement

Use one when:

• An employee is made redundant or dismissed by mutual consent.
• A performance, conduct, or grievance issue is resolved privately.
• A senior employee or director departs after negotiation.
• You’re offering ex-gratia (goodwill) payments or enhanced redundancy pay.
• The employment relationship is ending amicably and both parties want to record final terms.

In the UK, such agreements are especially important when an employee waives their right to make a claim - for example, for unfair dismissal or discrimination.

What to Include

The document should be detailed enough to protect both parties, yet clear and practical.

Typical sections include:

1. Termination Details

• Last day of employment.
• Confirmation that notice obligations are met or paid in lieu (PILON).

2. Payments and Benefits

• Severance or redundancy payment amount.
• Any outstanding salary, bonuses, or holiday pay.
• Pension and benefits continuation.

3. Waiver of Claims

• Confirmation the employee will not pursue tribunal or court action.
• List of claims being waived under relevant employment laws.

4. Confidentiality

• Non-disclosure of agreement terms or company information.
• Non-disparagement of employer or colleagues.

5. Return of Property

• Confirmation all company equipment, documents, or data are returned.

6. Reference or Announcement

• Optional wording for employment reference or public statement.

7. Legal Advice

• Confirmation that the employee has taken independent legal advice, which is a legal requirement under UK law.

8. Governing Law

• Typically stated as England and Wales.

Legal Requirements

For a Severance (Settlement) Agreement to be legally binding in the UK, it must:

• Be in writing.
• Identify the specific complaints or claims being waived.
• Confirm the employee has received independent legal advice on the terms and effect of the agreement.
• Include the adviser’s name and qualification (e.g., solicitor, certified trade union official).
• State that the adviser has insurance for giving such advice.
• Specify that the statutory requirements under Employment Rights Act 1996 have been met.

Without meeting these conditions, the waiver of claims will not be valid.

How to Create a Severance Agreement

It’s essential to handle the process carefully and lawfully from both sides.

• Agree key terms - payment, notice, and exit timing.
• Prepare the written agreement covering all required legal points.
• Provide a draft to the employee to review with their solicitor.
• Negotiate any adjustments in good faith.
• Ensure both parties sign, and include the adviser’s certificate.
• Process payment as per the agreed schedule.

Robot Lawyer helps you create a legally sound, customisable Severance Agreement that aligns with UK employment law, suitable for employers and employees alike.

Cost of a Severance Agreement

Typical solicitor fees range from £350 to £900 for drafting or reviewing a Severance Agreement. Employers usually contribute a set amount (e.g., £250–£500) towards the employee’s independent legal advice.

Robot Lawyer offers an affordable, professional alternative, allowing you to generate a compliant Severance Agreement instantly - complete with guidance notes for both sides.

Template Example

Severance Agreement

The example below provides a simple overview of how this type of employment separation agreement is typically structured and the information it usually contains. Actual content may vary depending on your organisation and legal requirements.

This Agreement is made on [date] between [Employer Name] (“the Employer”) and [Employee Name] (“the Employee”).

The Employee’s employment will end on [termination date].
The Employer agrees to pay:

Statutory or contractual notice pay of £[amount];

Ex-gratia payment of £[amount];

Payment for accrued but untaken holiday of £[amount].

The Employee agrees to waive any and all claims arising from employment or its termination.

The Employee confirms they have received independent legal advice from [Adviser Name, Firm, Qualification].

Signed by both parties on [date].

Robot Lawyer provides a solicitor-verified Severance Agreement template that sets out termination terms, severance pay, confidentiality, non-disparagement and release of claims - helping protect both the employer and the employee.

Create a professional Severance Agreement— with Robot Lawyer

Start the questionnaire to generate your document

Severance Agreement FAQs

Is a Severance Agreement the same as a Settlement Agreement?
Yes - in UK employment law, they are effectively the same. “Severance” is the broader business term; “Settlement” is the legal term under statute.

Do employees have to accept a Severance Agreement?
No - it’s voluntary. Both sides must agree freely and have time to consider it.

Can the employer withdraw the offer?
Yes, until both parties have signed.

Can it include confidentiality terms?
Yes - most do, to protect sensitive business or personal information.

What if the employee refuses to sign?
Then the standard employment rights apply and any negotiated payments may not be made.

Get Started

Need a Severance Agreement? Robot Lawyer helps you create a clear, legally sound agreement in minutes.

How it works:

1. Select Create Document → below to begin.
2. Answer a few questions about the relationship, termination terms and severance package.
3. Receive a solicitor-verified Severance Agreement instantly.
4. Review, sign and provide a signed copy to the other party.

Start the questionnaire to generate your document

✔ Fully compliant with UK employment law
✔ Covers pay, benefits, and legal protections
✔ Instantly downloadable and easy to customise